| If you prefer to listen to this newsletter, click here. The theme of this week’s Though is really theoretical at the moment, but if you take it to heart now, you will be forever grateful in forty years’ time. Let’s start with a story. |
| Wendy Selebi is a financial coach, an author and a podcaster. Do read her book that she’s holding in the picture: I wish someone had told me. At 50, she realised to her horror that she would have to scale down her lifestyle dramatically when she retired at 60. She told us the story in this podcast, recorded in 2024, just after she had retired. With enormous self-discipline, she used those last ten years of her working life to build up her savings so that she could live with ease after retirement. “I did not want to rely on my children,” she said, quite simply. Can you identify with that, possibly looking at it from the point of view of the child at the moment? Financial self-reliance in your later years is a gift to your children. The question is how to achieve it. |
| When you start saving for retirement, or start a job with a pension fund, it would be a good idea to speak to a financial adviser about the best investment options. One principle always remains true, however: when you start matters much more than how much you save. Last week we introduced the idea of compound interest, and we showed you that if you save R50 per month for 45 months at 7% interest, never withdrawing anything, you will have just over R2 600 at the end, R300 more than you actually put in. The compound interest will have added 6 months’ worth of contributions. The longer you leave your savings to earn interest, of course, the bigger that effect. Our partner, Capitec Bank, worked out an example for the GRAD booklet (it’s on page 22 if you have the hard copy.) Here it is: Qondiswa invests R500 per month at 10% interest, compounding annually. She begins at age 18. At age 28, she stops. She has invested a total of R60 000 over the 10 years. She never contributes again. She doesn’t withdraw any money from the account until she is 65, staying invested for a total of 47 years. Hlomla invests the same R500 per month, also at 10% interest, compounding annually. He begins where Qondiswa left off, at age 28, and continues investing R500 a month until he retires at age 65. Hlomla has invested for 37 years, contributing a total of R222 000. In total, Hlomla contributes nearly 4 times as much as Qondiswa, but she still reaches retirement with slightly more money than he has, simply because she started saving 10 years sooner than he did. |
| Own money invested | Years contributed | Years invested | Total balance | |
| Qondiswa | R60 000.00 | 10 | 47 | R1 051 346.55 |
| Hlomla | R222 000.00 | 37 | 37 | R998 124.15 |
| As a final example, consider Nicky. She invests R500 per month at 10% interest, compounding annually. She begins at age 18 and continues investing until retirement at age 65. She has invested for 47 years and contributed a total of R282 000. Although she has contributed only R60 000 more than Hlomla, she can retire with R1 million more than he does, simply because she started saving 10 years sooner. |
| Own money invested | Years contributed | Years invested | Total balance | |
| Nicky | R282 000.00 | 47 | 47 | R2 049 470.72 |
| Put this in the back of your mind for now. Guard your emergency fund, and start building a nest egg for immediate expenses when you start working. But then, when you start earning, start putting away something towards retirement from your very first salary payment. You – and your children! – will be forever grateful. Happy studying, and be careful with your money! The GRAD team |
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| GRAD – your guide to university success is a partnership project of Ruda Landman, StudyTrust, Van Schaik Publishers and Capitec Bank |
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